The National Pension System (NPS), for which the government has ambitious subscriber growth targets, would need tax incentives and deeper penetration in smaller towns, fund managers said. “The Budget has not made any announcements, only some clarifications. To achieve higher penetration, the NPS needs tax exemption for the final lump-sum payment, apart from more points of presence,” said the chief executive of a private fund manager who did not wish to be named.

The Pension Fund Regulatory and Development Authority Act provides for the pension scheme that is managed by fund managers. Other financial service providers like banks sell the NPS through their networks of branches. They are the interface between subscribers and the NPS architecture and perform functions relating to registration, verification, and receiving and transmitting contributions.

The pension regulator has brought out draft guidelines on registering sale points so that NPS subscribers get quick and wide access to the scheme. The guidelines also call for customer grievance services.

The NPS was adopted by the Centre as a defined contribution pension scheme for all central government employees, except the armed forces, joining service after January 1, 2004. The scheme was later made optionally available to all citizens from May 1, 2009. A variant is on offer to corporate employees, including the public sector, since December 2011.

“The NPS is superior to other retirement products because it is focussed on savings and is cheap. Total costs, including fund management fees, usually do not exceed 0.5 per cent a year. What is lacking is distributors,” said the head of another fund management company who did not wish to be named as well.

This year’s Economic Survey expects the NPS subscriber base to grow gradually from 6.71 million and a corpus of Rs 51,147 crore. Officials in the pension regulator’s office said the aim was to increase subscribers to 10 million in 2014-15. “This will not be a challenge. We are seeing a steady rise in both subscribers and assets under management,” an official who did not wish to be named said.

The pension law, effective from February 1, 2014, is described as a major milestone of 2013-14 by the Economic Survey. The law empowers the regulator to regulate the NPS and register and regulate pension funds as well as the central record keeping agency.

“Some banks are acting as points of presence for the NPS. However, we have received feedback from customers that the product is not available at all designated branches, and banks are not forthcoming with information about the scheme,” said a senior executive of a NPS fund manager who did not wish to be named.

To address this, the regulator’s draft guidelines proposes that sales points can make the scheme accessible online. Further, a pension ombudsman is also in the works to resolve subscriber complaints.

Pension earned from the NPS after retirement is taxable. An employee’s contribution up to 10 per cent of his basic salary and dearness allowance is eligible for income tax deduction within an overall Rs 1 lakh limit.

The NPS also offers an extra income tax deduction if an employer contributes 10 per cent of the basic salary plus dearness allowance to an employee’s NPS account. This has no upper limit.

“Some tax sops should be provided to push this product. We had expressed this concern to the finance ministry,” said the CEO of a fund management firm who did not wish to be named.

R V Verma, officiating chairman and member (finance) of the Pension Fund Regulatory and Development Authority, recently said there were 6.84 million NPS subscribers on June 7, 2014. The total assets under management stood at Rs 56,000 crore, which he said was growing at 8-9 per cent month on month.